Comments on Methodology

In attempting to estimate the number of MEGA jobs
that would be directly created by companies chosen to receive MEGA incentives, a number of assumptions had to be made that affected the totals. Tallying the MEGA program’s corporate successes and failures is an inexact science. The following is an explanation of how we determined the numbers used in this document and why we chose to exclude a number of firms from our analysis.

Background

With each MEGA deal, the state produces documents
that contain key data on each MEGA corporation and the impact its move or
expansion may have in terms of expected employment The Mackinac Center collects
these documents for each MEGA deal. The documents include what are known as
"Briefing Memos" and "Economic Effects" documents. We also employ summary sheets produced by the state known as "All MEGA Projects" and a spreadsheet simply known as "MEGA Credits."

In each of the Economic Effects memos and All MEGA
Projects spreadsheet there is a number listed for the "direct jobs" that a firm
is supposed to create. In the Economic Effects memos the number usually comes
with a description of the year by which the company is expected to create these
jobs at the facility for which the credit was granted. These are the figures
most often used by the state — and specifically by the governor’s office — when
it publishes press releases publicizing how many jobs will be coming to a
particular area of the state as a result of MEGA.

We compared the total of these MEGA job forecasts
through 2004 with the actual number of jobs that companies with MEGA contracts
have submitted to the state when claiming MEGA tax credits.

We estimate that through 2004, 127 MEGA deals should
have resulted in the direct creation of 35,821 jobs. This count excludes seven
companies that were not expected to create all of their direct jobs until after
2004, yet already appear on the "MEGA Credits" spreadsheet — proof that they
have at least created some of the jobs expected of them as part of the program.
The companies are excluded in the interests of maintaining a consistent time
frame in the analysis, as well as recognizing the possibility that the firms may
not retain these jobs long enough to meet the projected employment level for
that facility on the original date projected. (Kmart is a case where job decline
followed an initial creation of new jobs.)

From the "MEGA Credits" spreadsheet we compared the
jobs shown in the "Average QNJ" column for the "Tax Year" with the year the MEGA companies were supposed to have created jobs directly by a certain year.

The MEGA Credits spreadsheet lists 69 MEGA
corporations. Of these 69, only 10 can be shown to have created the number of
jobs directly and in the time frame that was expected. Three of those have
subsequently performed poorly: Kmart Corp, Howmet Corp.[2] and Robert Bosch Corp.

Kmart Corp. declared bankruptcy and appears to be
moving most of its headquarters operations to Chicago. Howmet won its MEGA deals
in 1997 and 1998. Howmet went on to create and claim MEGA relief for 201 jobs in
tax year 2001. Its project was then cancelled, placing it with Kmart and
National Tech Teams as MEGA deals that resulted in tax relief granted to
companies for jobs that no longer exist.

One could argue that the Robert Bosch Corp. does not
deserve to be counted among underperforming MEGA recipients. According to the
most recent version of the state’s "MEGA Credit" spreadsheet, Robert Bosch Corp.
was credited with 475 Average Qualified New Jobs by the state for tax year 2003.
But since 2003, the company has laid off about 1,200 people at its Kentwood
facility. According to a Robert Bosch Corporation spokesman, the current base
employment (as of February) in Michigan is 2,511.

This would appear to fall below the "minimum base
employment level" of 2,655 jobs that the company must maintain in order to
continue receiving MEGA credits. However, other Bosch-related facilities in
Michigan may be included in the MEGA deal, in which case Bosch’s total
employment figure for MEGA purposes may climb to 3,096. (Because of our
difficulties in obtaining information from MEGA on a variety of basic
definitional issues, we remain uncertain as to which count is appropriate for
MEGA purposes.)[3]

Regardless, The Detroit News reported in August 2004
that 500 additional layoffs would occur at Bosch’s St. Joseph plant. When the
St. Joseph layoffs are complete, the company may well fall below the "minimum
base employment level" it needs to maintain by either one of the job counts
(2,511 or 3,096). Even if does not, the fact remains that the company has
not performed well in recent years.

We also felt compelled to exclude a number of
companies among the 69 on this sheet when comparing the forecasted job totals to the actual job totals. These firms are listed below along with an explanation of the reason they were omitted.

Four of the corporations appear to have never received credits. They are CMI International; Dow Chemical Co.; Hess Industries; and National Tech Team
(second MEGA award). Each of these entries is denoted with a remark such as
"don’t expect to qualify."

General Motors was excluded from the final "MEGA Credits" count because it was simply a "retention" credit. A retention package, as opposed to a "creation" package, offers MEGA credits if a company simply promises both to retain jobs that already exist and to make other qualified investments.

One Kmart Corp. deal is excluded despite the firm’s earning MEGA credits, because no record on the central "MEGA Credits" spreadsheet exists for 2002, the year by which this particular deal was supposed to have resulted in all of the projected new jobs created.

Subtracting the six deals above and the seven deals
mentioned earlier, we are left with 56 MEGA corporations that have earned credit
for jobs allegedly created as a result of their MEGA deals. Thus, of the 127
deals, only 56 — just 44 percent — have actually earned any credits so far.[4]

It should be noted that this figure may be
understated due to the fact that some companies will work to delay making their
Single Business Tax payments and thereby delay any relief they will get through
MEGA once they claim credit. On the other hand, there is an important sense in
which the figures are arguably overstated, since some companies that appear on
the spreadsheet haven’t earned credits recently and may never do so again.
Counting them as "successes" is, perhaps, generous, given that MEGA’s purpose is
to generate meaningful job growth.

[1]
A slightly modified version of this appendix was originally posted to the
Mackinac Center’s Web site on March 17, 2005. See "Comments on Methodology"
following the Op-Ed text at
http://www.mackinac.org/7006.

[2]
In state documents, Howmet is sometimes identified
as Sprayform Technologies, International.

[3]The MEDC has failed to answer a number of
questions the Mackinac Center has posed in recent months.

[4]Even if the seven firms excluded earlier were
factored into the count — an inconsistency, but one that would recognize a
set of cases that are arguably "successes" — the tax credit claims rate
would rise from 44 percent to just 47 percent.